Disaster Proof Your Finances

Disaster strikes regularly, yet we never really believe it will happen to us. We can’t, because living like that would be overwhelmingly stressful.

But that doesn’t mean we can’t prepare…just in case. Building an emergency kit is smart. So is disaster-proofing your finances.

Widespread disaster or localized? Why it matters

According to FEMA, the most common type of disaster in the United States is flooding. (And I believe it. That photo above? It’s from my neighborhood after a brief downpour a few years back.)

On the other hand, home fires are the disasters most commonly responded to by the Red Cross. This implies that the disasters you’re most likely to face will either be widespread — affecting entire communities — or more localized, such as in the case of an individual home fire or a fire in an apartment complex.

What does that mean for disaster-proofing your finances? It means that to be safest, you’ve got to store copies of your financial records and important papers not only outside of your home, but outside of your community. You’ve also got to be prepared for the possibility of higher prices in the area when everyone needs to clean up and rebuild at once, and for a shortage of available temporary housing. (“Temporary” could mean anything from days to 18 months or more.)

Where to start

Start with the most basic thing: money that will carry you through financially in the immediate aftermath of a disaster. Make sure you have cold, hard cash on hand in a variety of small denominations. The power goes out in many types of disasters, and you won’t be able to use an ATM or pay for necessities with your debit or credit card. Banks may be destroyed or be difficult for you to get to. Stores that do open after the disaster will likely take cash, so you want small bills in case they’re not able to make change.

Prepare for disaster with adequate insurance

You need the right types of insurance, with adequate coverage. Review your insurance policies at least once a year to make sure they still meet your needs.

If you own a home, you need homeowner’s insurance that will cover your home and its contents. Ideally, you want replacement cost insurance, not just insurance that will pay you for the current (and probably low) actual cash value of the things you own. You’ll also want your insurance to pay for you to live elsewhere while you can’t live in your current home. And if you live near or in an area prone to floods, earthquakes, or hurricanes, you also need special insurance specifically for those types of disasters.

If you rent, you need renter’s insurance. Yes, even if you don’t own much, or don’t think what you do own is worth much. Imagine going out and replacing your entire wardrobe today, down to every piece of underwear. The costs of replacing even just the basics add up fast — much faster than you might realize. Plus, you may not be able to work after a disaster, even if you yourself are physically fine, because your place of employment may be destroyed, damaged, or without power. So now imagine replacing everything you own without an income. Suddenly the very low cost of renter’s insurance might be more appealing.

If you own a car and can’t afford to buy a replacement if it’s damaged or destroyed in a disaster, you need car insurance that will cover its loss in the event of a natural disaster or fire. Check your policy to be sure yours covers that kind of loss, as it may not. And “liability-only” policies definitely won’t. (If you drive a low-value car, and have a fully funded emergency fund, you might be ok with just liability. It just depends on your level of risk tolerance and situation.) Be aware that public transit can be down for weeks after a widespread disaster, so you can’t always count on that as a backup plan. You may need to rely on neighbors, your feet, or a bicycle to get to your job if you aren’t able to get a replacement car.

Once you’ve got adequate insurance…

Keep the phone number and web addresses of your insurance companies and your policy numbers handy. (Ideally on a piece of paper that you carry with you in your wallet, in addition to being programmed into your phone.) This includes insurance companies of all types: homeowner’s, renter’s, flood, car, health, and life. In the event of widespread disaster, many insurance companies will set up special hotlines for victims of the disaster. Call them or visit their web site to find out what the next required steps are.

Typically though, you’ll need to provide a detailed list of the contents of your destroyed property to the insurance company. Quick, close your eyes right now and write down every single thing inside your desk. Now imagine doing that for your entire house, right down to the number of pairs of socks you own. It’s pretty much impossible to do accurately. So if you don’t have a photographic memory, you need actual photos or videos to help you do this. It doesn’t take long to shoot the photos or video, so do so at least annually. And then email them to yourself so they can be accessed from anywhere. For major purchases, scan or photograph the receipt and email that to yourself as well.

Storing important documents

In addition to the insurance-related documents mentioned above, you’ll want to keep copies of other important documents too. Consider storing them in a fire safe, a safe deposit box outside the area, or in strongly password-protected files on a thumb drive that you keep with you on your keyring or at another secured location. You’ll want copies of identity documents (driver’s license, passport, birth certificate, social security card), marriage license, divorce paperwork and custody agreements, the latest household inventory, your last tax return, business paperwork if you own a business, and your will and trust. While you’re at it, why not include a list of regular medications & their dosages, photos of loved ones and any precious keepsakes that are on paper too? Just be sure everything you store is secure, as it’s all information an identity thief could have a field day with.

If you’re not yet prepared

I realize that gathering and arranging all of this may seem overwhelming. But disaster-proofing your finances is well worth it should the worst come to pass. So if you’re not yet as fully-prepared as you might like, just start somewhere, right now. Take 5 minutes to walk around your home shooting photos for that home inventory, or call to check on your coverage. And then schedule each remaining item onto your calendar until you get it done. You’ll be glad you did.

Have you ever been impacted by a disaster? What would you tell someone who hadn’t been?